Last month I looked at the rights of cohabitees, in relation to home ownership and access to children.
 
With a rise in cohabitation however, there are other important financial aspects to consider, proving the myth of ‘common law marriage’ to cause more complications than many people appreciate, including the right and access to pensions for example, and the importance of making a Will.


Pensions


It is rare for both parties in a relationship to each be making pension contributions throughout their working lives such that their pension provision at retirement will be the same.  When a couple has children, it is common for at least one party to take some time out from the workplace. This is often the lower earner. Whilst taking a break from work, or by working part-time hours, that party will not contribute (or not contribute as fully) to a workplace pension or earn national insurance contributions from employment, which can impact upon their available pension later in life (note: action can be taken to apply to make up years of nil national insurance contributions by making payments to HMRC up to 6 years).


The reality, however, is that unmarried couples do not have to share their personal pensions when a relationship breaks down. Nominations of beneficiaries under pension schemes can also be promptly changed, following a couple separating.  Some schemes will contain a financial provision for spouses which is not offered to cohabitees. Discuss with your partner how you intend to provide for each other in the future. You may wish to consider taking professional investment advice to build up a combined pension and/or investment portfolio, and/or one party can contribute to ‘level up’ the pension of the other party. Or, you may decide to keep your respective pension arrangements entirely separate from one another, either with or without nominating your partner as beneficiary for any benefits tied to the pension on your death.


The importance of making a Will

Unlike married couples, in the unfortunate event of one party in the relationship dying without making a Will, the other party will not automatically be entitled to inherit assets held in the deceased party’s name. The surviving partner will only be entitled to assets which have been gifted to them in the deceased party’s Will. If there is no Will, the rules of intestacy will instead apply. The rules list a running order of who inherits, based on familial relationships, beginning children, then parents and then siblings – with no mention at all of cohabitees.


The surviving party could seek to claim under the Inheritance Act 1975 to show that it is reasonable to expect that the deceased partner would have made provision for them in their Will, provided that certain criteria are met, but the financial provision awarded under this Act can be less than generous. If a cohabitee has to rely on this Act, then they will likely have to incur the costs of legal advice and the stress of proceedings, at an already difficult time.

Inheritance tax provision for spouses is not available to cohabitees either, so cohabitees can be disadvantaged on the death of one party, where the relationship endures to the death of the first cohabitee.

Based on above, and given the limited legal protections afforded to cohabitees, it is especially important that they commit to reviewing together their respective financial positions and regularly revisit their expectations around financial support, at each point when they take decisions in their relationship.  We strongly recommend entering into a cohabitation agreement, to provide both parties with that protection. 

If you have any queries relating to any aspects of cohabitation, please don’t hesitate to contact me, Katie Machin directly Katie.Machin@SilkFamilyLaw.co.uk, 0191 4065004.